General Liability Line Rates Should Rise As Profits Drop

General liability insurance should see a small increase in premium rates by next year as profits start declining, according to a study by Hartford, Conn.-based Conning Research and Consulting.

The firm said the GL commercial line, that involves about $58 billion in direct premiums written, has been profitable with industry-wide combined ratios below 100 for the past two years, but warned this positive underwriting performance is unlikely to continue.

Conning said the general liability it studied consists of ?other liability? and products liability–with ?other? consisting of commercial general liability policies and professional liability, as well as including commercial umbrella, personal umbrella, and excess liability policies.

?We project that the next couple of years will see a moderating in general liability premium reduction, gradually leading to a modest increase by 2010,? said Mark Jablonowski, analyst at Conning Research & Consulting, calling the market outlook ?not a very rosy picture.?

He predicted losses and expenses will grow more quickly, with a resulting deterioration in combined ratios, reaching 107 by 2010.

?In the longer run, the future of the general liability insurance market will play itself out between the cumulative effects of small-to-moderate losses and the rising prospect of mega-risks,? said Mr. Jablonowski.

The study found the ?highly cyclical? line has seen combined ratios as poor as 138, with the average for 10 years at 114.

However, the study added, ?in spite of that, [the GL sector] has been able to be profitable nine of the past 10 years when supported by investment income on loss reserves.?

The Conning Research study–entitled ?General Liability: Staying Relevant (and Profitable) in the New World of Risk?–besides reporting on market conditions, contains recommendations on how insurers should respond.

These include expansion of core insurance business to a ?super core?–including not only select specialization, but also an emphasis on risk support services.

It also advises that insurers must have an ability to closely monitor losses, and warns they may have to make tough tradeoffs, ?such as between profitability and growth.?